Annual Report and Accounts 2010
Southern Cross Healthcare
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Name: Chevaun Varga
Job title: Care Assistant
Our care staff are the frontline troops in achieving our aim to make residents feel comfortable, respected and well cared for at all times – in fact, to make them feel as ‘at home’ as possible and allow them to carry on with normal life. We recognise that the professionalism of our staff is the most important factor in creating a caring environment which meets the needs and expectations of residents and their families alike. We want Southern Cross to be universally recognised for the high quality of our care. More than any other single factor, it is our care staff who will achieve that for us.
Southern Cross Healthcare Group PLC
Southgate House
Archer Street
Darlington
DL3 6AH
Tel: 01325 351100
Fax: 01325 351144
Annual Report and Accounts 2010
Southern Cross Healthcare
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Name: Chevaun Varga
Job title: Care Assistant
Our care staff are the frontline troops in achieving our aim to make residents feel comfortable, respected and well cared for at all times – in fact, to make them feel as ‘at home’ as possible and allow them to carry on with normal life. We recognise that the professionalism of our staff is the most important factor in creating a caring environment which meets the needs and expectations of residents and their families alike. We want Southern Cross to be universally recognised for the high quality of our care. More than any other single factor, it is our care staff who will achieve that for us.
Southern Cross Healthcare Group PLC
Southgate House
Archer Street
Darlington
DL3 6AH
Tel: 01325 351100
Fax: 01325 351144
Interim results – 10 May 2011 Financial year end – 30 September 2011
Registered Office
Southern Cross Healthcare Group PLC
Southgate House Archer Street Darlington
County Durham DL3 6AH
Registered Number 05328138 Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield
West Yorkshire HD8 0GA
Brokers
Morgan Stanley Securities Limited
20 Bank Street Canary Wharf London E14 4AD
UBS Limited
1 Finsbury Avenue London EC2M 2PP
Chartered Accountants and Statutory Auditors
PricewaterhouseCoopers LLP 89 Sandyford Road
Newcastle upon Tyne NE1 8HW
Solicitors
DLA Piper UK LLP
Princes Exchange Princes Square Leeds LS1 4BY
Clifford Chance LLP
10 Upper Bank Street London E14 5JJ
Bankers
Barclays Bank
1 Churchill Place Canary Wharf London E14 5HP
Shareholder Enquiries
If you have any enquiries as a Shareholder, please contact: David Smith, Group Finance Director, on 01325 351100 or via email: david.smith@schealthcare.co.uk
Website: www.schealthcare.co.uk
Specialist Care
Southern Cross offers care for people with a variety of special needs in both residential and nursing care homes. Our aim is to provide a safe and supportive environment which is sensitive to the ever-changing needs of these residents.
Operating Highlights
Available beds increased to 38,603 at the period
•
end (2009: 38,124 beds).
Number of homes operated increased
•
to 752 at the period end (2009: 744).
Average occupancy 84.8% (2009: 87.7%), average
•
occupancy restated for marketable beds of 87.8%.
Average weekly fee increased by 2.2%
•
to £558 (2009: £546).
Significant progress made towards improving
•
overall service quality, with 82% (CQC suspended
ratings nationally in June 2010) judged excellent
or good, up from 81% in March 2010, 77%
in September 2009 and 71% in May 2009.
Self funding admissions up from 17% of total
•
admissions in March 2010 to 20% in September 2010.
Financial Highlights
Home EBITDAR before central costs decreased
•
by 3.3% to £280.9m (2009: £290.6m).
Adjusted EBITDA of £53.4m (2009: £72.5m).
•
Adjusted earnings per share for the period
•
of 7.65p (2009: 17.65p).
Net debt at period end reduced by £25.8m
•
to £7.3m.
Revision to existing banking arrangements,
•
including an improvement in the fixed charge
covenant from 1.23x to 1.1x.
Statutory Financial Highlights
Revenue increased by 2.3% to £958.6m
•
(2009: £937.1m).
Operating loss £44.1m (2009: loss of £12.7m)
•
after a non-cash charge of £51.3m (2009: £51.8m)
for future minimum lease increases under IAS17
and exceptional charges of £6.3m (2009: £Nil).
Excluding these charges, operating profit was
£13.5m (2009: £39.1m).
Basic loss per share for the period of 19.51p
•
(2009: 11.75p loss).
Notes
Mature occupancy excludes immature beds, newly developed homes or refurbished homes which have been trading for less than 12 months. Home EBITDAR represents earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, impairment of freehold assets held for sale, onerous contracts and related impairments and rent.
Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, impairment of freehold assets, onerous contracts and related impairments and charges for future minimum rental increases and exceptional central costs. Adjusted earnings per share is defined as earnings before charge for future minimum rental increases, exceptional central costs, onerous contracts and related impairments, loan arrangement fees written off, loss on disposal of property, plant and equipment and subsidiary undertakings and impairment of freehold assets held for sale and the taxation impact thereof, divided by the weighted average number of shares.
At the start of the financial period, the Group changed its internal reporting cycles and now reports on a calendar monthly basis (previously the Group reported 13 periods of 4 weeks). The results for the period ended 30 September 2010 are therefore for a period of 368 days (2009: 364 days).
Central
199 (21 active) homes
South
166 (18 active) homes
Scotland and Northern Ireland
124 (2 active) homes
National Support Centre Darlington Head Office Woking
North
214 (8 active) homes
703
Elderly Care Homes
49
Active Care Homes
2010/2011 Financial Calendar
Interim results – 10 May 2011 Financial year end – 30 September 2011
Registered Office
Southern Cross Healthcare Group PLC
Southgate House Archer Street Darlington
County Durham DL3 6AH
Registered Number 05328138 Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield
West Yorkshire HD8 0GA
Brokers
Morgan Stanley Securities Limited
20 Bank Street Canary Wharf London E14 4AD
UBS Limited
1 Finsbury Avenue London EC2M 2PP
Chartered Accountants and Statutory Auditors
PricewaterhouseCoopers LLP 89 Sandyford Road
Newcastle upon Tyne NE1 8HW
Solicitors
DLA Piper UK LLP
Princes Exchange Princes Square Leeds LS1 4BY
Clifford Chance LLP
10 Upper Bank Street London E14 5JJ
Bankers
Barclays Bank
1 Churchill Place Canary Wharf London E14 5HP
Shareholder Enquiries
If you have any enquiries as a Shareholder, please contact: David Smith, Group Finance Director, on 01325 351100 or via email: david.smith@schealthcare.co.uk
Website: www.schealthcare.co.uk
Shareholder
Information
We provide an
extensive range of
healthcare services,
including:
needs. Such services may involve palliative care, dementia care, post-operative care or respite care, all tailored to the needs of the individual.
Residential Care Homes
Southern Cross offer a number of residential care homes, which are designed specifically to cater for the needs of those who find difficulty caring for themselves at home, but wish to retain their independence. All Southern Cross care homes are staffed 24 hours a day by trained carers whose goal is to maintain the quality of life of those for whom they care.
Specialist Care
Southern Cross offers care for people with a variety of special needs in both residential and nursing care homes. Our aim is to provide a safe and supportive environment which is sensitive to the ever-changing needs of these residents.
Operating Highlights
Available beds increased to 38,603 at the period
•
end (2009: 38,124 beds).
Number of homes operated increased
•
to 752 at the period end (2009: 744).
Average occupancy 84.8% (2009: 87.7%), average
•
occupancy restated for marketable beds of 87.8%.
Average weekly fee increased by 2.2%
•
to £558 (2009: £546).
Significant progress made towards improving
•
overall service quality, with 82% (CQC suspended
ratings nationally in June 2010) judged excellent
or good, up from 81% in March 2010, 77%
in September 2009 and 71% in May 2009.
Self funding admissions up from 17% of total
•
admissions in March 2010 to 20% in September 2010.
Financial Highlights
Home EBITDAR before central costs decreased
•
by 3.3% to £280.9m (2009: £290.6m).
Adjusted EBITDA of £53.4m (2009: £72.5m).
•
Adjusted earnings per share for the period
•
of 7.65p (2009: 17.65p).
Net debt at period end reduced by £25.8m
•
to £7.3m.
Revision to existing banking arrangements,
•
including an improvement in the fixed charge
covenant from 1.23x to 1.1x.
Statutory Financial Highlights
Revenue increased by 2.3% to £958.6m
•
(2009: £937.1m).
Operating loss £44.1m (2009: loss of £12.7m)
•
after a non-cash charge of £51.3m (2009: £51.8m)
for future minimum lease increases under IAS17
and exceptional charges of £6.3m (2009: £Nil).
Excluding these charges, operating profit was
£13.5m (2009: £39.1m).
Basic loss per share for the period of 19.51p
•
(2009: 11.75p loss).
Notes
Mature occupancy excludes immature beds, newly developed homes or refurbished homes which have been trading for less than 12 months. Home EBITDAR represents earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, impairment of freehold assets held for sale, onerous contracts and related impairments and rent.
Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, impairment of freehold assets, onerous contracts and related impairments and charges for future minimum rental increases and exceptional central costs. Adjusted earnings per share is defined as earnings before charge for future minimum rental increases, exceptional central costs, onerous contracts and related impairments, loan arrangement fees written off, loss on disposal of property, plant and equipment and subsidiary undertakings and impairment of freehold assets held for sale and the taxation impact thereof, divided by the weighted average number of shares.
At the start of the financial period, the Group changed its internal reporting cycles and now reports on a calendar monthly basis (previously the Group reported 13 periods of 4 weeks). The results for the period ended 30 September 2010 are therefore for a period of 368 days (2009: 364 days).
Central
199 (21 active) homes
South
166 (18 active) homes
Scotland and Northern Ireland
124 (2 active) homes
National Support Centre Darlington Head Office Woking
North
214 (8 active) homes
703
Elderly Care Homes
49
Active Care Homes
care at the heart of the
communities we serve.
Overview
Highlights of 2010 IFC
Chairman’s Statement 02
Business Review
Questions and Answers from
our Director of Care 06
Chief Executive’s Statement 08
Financial Review 16
Corporate Social Responsibility 20 Management and Governance
Directors and Officers 24
Executive Committee 26
Directors’ Report 28
Corporate Governance 31
Remuneration Report 37
Consolidated Financial Statements and Notes Independent Auditors’ Report to
the Members of Southern Cross
Healthcare Group PLC (Group) 44
Consolidated Income Statement 45
Consolidated Balance Sheet 46
Consolidated Cash Flow Statement 47 Consolidated Statement of
Changes in Shareholders’ Equity 48 Notes to the Consolidated
Financial Statements 49
Company Financial Statements and Notes Independent Auditors’ Report to
the Members of Southern Cross
Healthcare Group PLC (Company) 78
Company Balance Sheet 79
Company Statement of Changes
in Shareholders’ Equity 79
Statement of Accounting Policies 80 Notes to the Financial Statements 81 Other Information
Three-year Record 83
Chairman’s
Statement
Ray MilesNon-Executive Director and Chairman
Strategic Focus
During the period, we maintained a clear strategic focus on the Group’s New Horizons change programme the aim of which is to create an organisation capable of providing universally trusted levels of care based on the respect and dignity of the individual and delivered in modern, high quality accommodation. To some extent, the operational imperatives underlying this programme – improving the quality of our service delivery, investing in the development of our people and management systems, and capturing efficiency savings – have been given more immediacy by the need to meet the challenges posed by the macro-economic factors impacting the Group.
In common with other sectors, economic uncertainty was prevalent during the period under review. The period started positively before conditions became more difficult as concerns grew about the public deficit and future government policy, including the significant impact of likely cuts in public spending to be announced in the autumn Comprehensive Spending Review. This was always likely to have a substantial impact on a business so reliant on Local Authority funding.
Against this backdrop, the Group experienced lower admissions than seen for some time, resulting in a fall in occupancy rates. In addition, fee negotiations with Local Authorities became more difficult. At the same time, cost pressures continued unabated including the negative effects of rent escalation, rising minimum wage and higher utility costs.
Against this background, the need for delivering the New Horizons programme is clearer than ever. Its main objectives are to:
Enhance care delivery so that we are ultimately recognised •
as the most trusted care home group in the UK.
Increase the number of self-funding residents, thus reducing •
our dependence on public funding and improving margins. Improve efficiency so that everything is done in a better, •
more effective and lower cost manner.
Reorganise our management structure to create a flatter, •
more responsive and accountable management team. In all of these we have made substantial progress during the period but there is still much to be done.
As announced on 25 November 2010, the Board has been approached by other parties expressing potential interest in the Group. The approaches are still preliminary in nature, and the Board continues to believe it to be in shareholders’ interests to continue to hold exploratory discussions.
In common with other sectors,
economic uncertainty was
prevalent during the period
under review. The period started
positively before conditions became
more difficult as concerns grew
about the public deficit and future
government policy, including the
significant impact of likely cuts in
public spending to be announced
in the autumn Comprehensive
Spending Review. This was always
likely to have a substantial impact
on a business so reliant on Local
Authority funding.
Financials
The macro-economic factors described above combined to negatively impact Group results and in March we lowered market expectations for the full year outturn. An adjusted EBITDA of £53.4m was achieved compared with £72.5m in 2009 and £78.1m in 2008. Revenue grew by 2.3% to £958.6m from last year’s £937.1m. Home EBITDAR margin before central costs has fallen by 1.7% to 29.3%. Occupancy in our mature homes fell from 88.4% to 86.1%.
Net debt fell further by £25.8m to £7.3m, a significant achievement given the underlying trading environment. The Group continues to pursue its policy of further reducing debt and, therefore, the Board has decided not to propose a final dividend for FY2010.
On 19 May, we announced we had consolidated the Group’s banking arrangements into a revised amortising £50m revolving credit facility (RCF). This facility replaced all the Group’s existing bank facilities and reduced the number of Syndicate lenders from eight banks to two. I am pleased to report that following recent discussions with the Group’s lenders, revisions to the existing banking arrangements were agreed on 6 December 2010. The facility now comprises an amortising £45m RCF repayable in September 2012, with the fixed charge covenant relaxed from 1.23x to 1.1x.
Industry Developments
In July 2010, the Government launched its Commission on the Funding of Care and Support (known as the Dilnot Commission) to examine the future provision and funding of care in the UK. Southern Cross fully supports the work of this important body and made an early initial submission to it.
We look forward to working with the Commission to help it reach a balanced view of how our society can provide affordable and sustainable care capable of meeting the long-term needs of an ageing population. In particular, we believe the Commission should play a critical role in encouraging Local Authorities, the NHS and care providers such as ourselves to work together in developing the services required to meet the future needs of an ageing population. Such collaboration should enhance the care delivered to our elderly population, whilst generating better value for all those who commission care and moving us towards a system which pays providers the true cost of care and alleviates current imbalances in fee rates around the country.
The NHS is changing, with GP consortia about to assume responsibility for commissioning replacing PCTs in this regard. They will be responsible for organising healthcare and deciding which services to buy and from whom. While remaining focused on our core elderly care services, we will continue to respond flexibly to changing market demands and take advantage of the opportunities presented. This will include offering more specialised care – for example, in dementia, palliative and step down care. As people’s perception of appropriate personalised care for individuals evolves, this will also involve greater levels of day care provision, outreach care in the community and short-term and respite care as Local Authorities seek to encourage and support people to stay in their own homes, with support, for as long as practicable.
At the Heart of the
Local Community
At Southern Cross, we encourage our residents to enjoy as active and independent a lifestyle as possible. Our approach to care is based on treating every resident as an individual, not only with regard to their specific care and nursing requirements, but also with an eye to enabling them to pursue the interests, hobbies and activities they have always enjoyed and gained so much from. One area where this strategy is particularly appreciated by residents is relations with the local community in which they live. There is no reason why they should not continue to play a valuable role in the life of their local community – just as they have always done. That’s why we encourage residents and their families to get involved with a wide number of community related activities. These may include, for example, raising money for the special baby unit at the local hospital, or making a contribution to a local youth sports group or fundraising for local or national charities. The choice is endless – and any funds raised by our individual homes are topped up or matched by a central donation from Southern Cross itself.We are proud of our residents’ record for helping a wide range of deserving causes and see it as a vital part of them remaining an active, motivated and appreciated section of society.
Of course, community engagement is a two-way process. As well as reaching out into local communities, we also encourage others to see our care homes for what they are – vitally important local amenities and vibrant communities in themselves. Residents can benefit enormously from regular visits from, for example, local school children and theatre groups or others such as crafts and pet therapy specialists. In this way, as wide a range of people as possible can see that they have a role to play in the well-being of elderly people in our communities.
Landlords
During the period, the Group engaged Morgan Stanley to review its lease arrangements with landlords. All leases are subject to escalation clauses. Whilst many are fixed, a significant number of rents are tied to RPI, resulting in rents currently rising faster than the fees we charge. This work is ongoing and the Group has entered into a dialogue with some of its landlords to explore ways in which rents might be restructured to provide greater stability and a stronger covenant.
People
The Group remains a significant employer with a dedicated team of over 43,000 people working in homes across the UK. I never fail to be impressed by the commitment and expertise of our staff, so often displayed in testing circumstances. For most, their job is more than a way of earning a living – it is a vocation. Increasingly, we seek to recognise this in our comprehensive training programmes and remuneration packages. Our people are one of the reasons that I am optimistic about the future. On behalf of the Board, I thank colleagues throughout the business for their outstanding contribution in a difficult year. In August, Irene Gray joined the company as Director of Care. This is an important milestone. Her appointment is a clear demonstration of the Group’s commitment to take the lead in clinical governance and deliver dependable high quality services which are respected by those who commission care as well as by residents and their families.
Notwithstanding, we see difficult trading conditions in the short term, we remain as determined as ever to forge ahead with our change programme which we confidently expect to deliver long-term, industry-leading levels of quality and service. This will put Southern Cross in a strong position to take advantage of the demographic trends that continue to indicate a longer-term increase in average age and demand for elderly care services.
Ray Miles
Chairman
Name: Tom Spence
Job title: Activities Co-ordinator
Enabling our residents to be as physically and mentally active as they want to be is a cornerstone of our holistic approach to care. In each of our regions, we have members of staff, such as Tom, whose role is to ensure that residents have access to a wide range of activities catering to as many tastes, abilities and hobbies as possible. These can range from gardening to fundraising for worthy local causes, from craftwork to musical and theatrical performances, from games such as carpet bowls to outings to local places of interest.
Notwithstanding, we see difficult
trading conditions in the short
term, we remain as determined
as ever to forge ahead with
our change programme which
we confidently expect to deliver
long-term, industry-leading
levels of quality and service.
Questions and Answers from Irene Gray
– our new Director of Care
Q. You recently joined Southern Cross after a career spent in the NHS. What persuaded you to join the company?
A. Throughout my career, my primary clinical interest has always been the care of the elderly. After 38 years in the NHS as a registered nurse, including 24 years as an executive, I was looking for an opportunity which would draw on my experience and where I could make a real difference. I was impressed by Southern Cross’ challenging journey to put care at the heart of everything they do and to support and influence the national agenda. As we care for some of the most vulnerable people in society, it is critical that care providers have the vision and the ability to deliver the best possible standards. To be able to lead on developments in care is quite clearly a privilege.
Q. What do you see as the particular challenges facing the industry?
A. With an expanding elderly population and tight Local Authority budgets, the most obvious challenge is how to provide levels of personal care which meet the expectations and needs of current and future generations whilst, at the same time, making sure that care remains affordable and of the highest quality.
Without question, my priority is
to develop a Strategy for Care
which is enthusiastically adopted
and ‘owned’ by all our staff and
which clearly sets out our route
towards excellence in providing
care services.
Q. What are the main priorities facing Southern Cross?
A. Last year, we launched our New Horizons change programme which puts quality of care right at the heart of everything we do. The aim is simply to make ours the most trusted and sought after care experience in the country. Southern Cross is aiming to become the industry benchmark for excellence in care provision. That means creating a Strategy for Care which demonstrably meets the needs of all our residents and provides outstanding and affordable personalised care.
Q. How will you know that you have been successful?
A. There are four ways in which we will know. First and foremost, it will be evident in the number of our homes rated as Good and Excellent. Secondly, partnerships will be strengthened with our commissioners and other key stakeholders and they will demonstrably support and engage with us in our future plans. Thirdly, staff turnover, so often a negative factor in maintaining high quality care services, will reduce. And finally, our occupancy levels will improve as our name becomes synonymous with excellence. In addition to that, of course, we will know simply because our residents and their families will tell us how we are doing.
Q. What is your vision of future care provision?
A. The service of the future will undoubtedly look and feel different. Most importantly, it will be of a uniformly high quality, more responsive to the needs of society and always open to further change in order to meet the needs of future generations. Improvements will come through the profession’s responsiveness to the needs of the elderly communities we serve, with greater rehabilitation and domiciliary support allowing elderly people to stay longer in their own homes. One of the highest expectations I have is to see significant improvements in the care of people with dementia. Above all, the service of the future will be based on individualised care. Our ability to deliver the full range of personal care services to the people who need them will be judged on our ability to do so in a way which, at all times, respects and preserves the dignity of the people who rely on what we do.
Success in delivering our Strategy for Care will lead to Southern Cross becoming a magnet for the highest calibre of staff in the industry. Throughout their career, we aim to offer all our dedicated staff continuous, in-post training and personal development. This approach will serve to improve job satisfaction and reduce staff turnover.
Q. What do you see as your own main goal for the coming year?
A. Without question, my priority is to develop a Strategy for Care which is enthusiastically adopted and ‘owned’ by all our staff and which clearly sets out our route towards excellence in providing care services. The Strategy will deliver a framework to strengthen and improve standards in care practices and make significant inroads to redesigning the way we deliver Dementia Care and End of Life Care. A vital part of this – and it is central to the New Horizons programme – will be to invest in the fabric and facilities in each of our homes over a planned period of time, and to improve the quality rating of all homes across the Group.
Q. Do you believe that the Group can achieve its objective of becoming the most trusted care provider in the UK?
A. Yes, I do. Everything we do is focused on continuously improving the quality of care we offer our residents and their families. The quality of the care we provide depends on the quality and motivation of the staff in our homes. We want the best staff in the profession, so training will continue to be a prime focus. New Horizons is already delivering positive results and I have no doubt that we can achieve our goals. We want our name to be synonymous with the highest levels of care quality available anywhere. This objective is not out of reach: we simply need to recognise the challenges, agree our approach and, week in, week out, focus on delivering continuous improvement. But success will not come overnight and our priority is to ensure that progress is sustainable and therefore delivery must be paced. That is why the New Horizons programme is planned to extend over several years.
Chief Executive’s
Statement
Jamie Buchan Chief Executive
Overview
During the period, we have made significant progress towards transforming the business such that, by 2015, we become recognised as providing the most trusted and sought after care experience in the UK. In pursuit of this aim we successfully completed the first phase of our internal change programme, New Horizons, which I introduced in last year’s report and for which the following objectives (end calendar year 2011) have been communicated:
Improving service quality such that at least 85% of our •
homes are externally judged good or excellent.
Adding 1,200 self funding residents, thereby raising their •
proportion of total residents to 22%.
Reducing Home Manager turnover to 22% per annum. •
Re-engineering the Group’s cost structure to achieve savings •
of at least 1% of revenue.
Overall we believe that the New Horizons programme will generate between £15-£20m of annualised value to the business by the end of 2011 together with a transformed operational capability.
My priorities for the business
are as follows:
• Improve care delivery to our
residents in a measurable
and sustainable way.
• Grow our share of dementia,
end of life and ‘step down’
care markets.
• Increase the number of self
funding and co-paying residents.
• Achieve real reductions in cost
to serve.
• Invest in our care homes and
in the staff who deliver care.
Name: Harry Carson
Job title: Catering Manager
If an army marches on its stomach, then the same can be said of residents in care homes! A balanced, healthy diet is absolutely vital for people who are perhaps no longer as active as they once were. Behind the scenes, an army of catering managers such as Harry ensure that our residents up and down the country receive three good square meals every day. Catering as far as possible to individual preferences and requirements, Harry works closely with Southern Cross’ dedicated experts to ensure that the meals we serve are nutritious, appetising and well cooked.
Chief Executive’s Statement
(continued)
New Horizons
1. Organisation Structure
In order to enable the business to meet its objectives, between February and July of this year, we undertook a major re-organisation of our field operations and central functions. We de-layered our operations function from seven to four management levels, exiting 38% of operations staff above Home Manager level and invested the savings in:
Decentralising operations to four P&L accountable regions. •
Establishing a care function. •
Establishing a full human resources function. •
Establishing a sales capability. •
Whilst the reorganisation has not been without its challenges, it is already clear that the new structure has led to improved care quality (lower number of embargoed homes) and a better sales mix (more self funders) whilst empowering Home Managers to develop their businesses for the benefit of the communities which they serve.
Regional Business Units
Our four new Regional Directors have fully established their regional teams in which 33 Area Managers, each with a team of c21 Home Managers, play the central role. Within each area, Home Managers are further supported by a local team of subject matter experts covering people management, training, sales development and business analysis. In addition, each Area Manager team is supported by a dedicated Care Quality Advisor responsible for raising standards of care.
Care Function
Our overriding obligation and commitment is to deliver excellent, affordable, personalised care to our residents and we have made strong progress in the creation of a care function within the Group. In February we created over sixty new, field-based, roles including a national team of Service Quality Inspectors who inspect every one of the Group’s homes on a risk-assessed frequency against a set of demanding standards based on individual resident outcomes. In August, the Group announced the appointment of Professor Irene Gray to lead the function as Director of Care. Irene’s job is to raise standards of care and clinical governance across the portfolio and to act as a champion for the development of the nursing and care profession within Southern Cross.
A revised Clinical Governance system has also been introduced to provide assurance over standards. New systems are being deployed to analyse key care data with the objective of establishing a set of indicators which will allow the Group to predict homes which are failing and, consequently, to adopt an early intervention approach.
We have continued to make good progress against our target for improving the quality of care delivered in our homes. The table below shows that the number of homes in England judged by the external regulator as Good or Excellent had risen 5% to 82% by Q3 of 2010. Full year figures are not available as the Care Quality Commission discontinued their star rating system in June. The Group is confident however that its internal quality inspection process will continue to drive standards up whilst reducing the number of poor and adequate homes.
SCH SCH 2010 2009 Q3 Full CQC Scoring*1 (Actual) (Actual)
Good/Excellent 82% 77%
Poor/Adequate 18% 23%
* 1 CQC no longer update their quality scores following the implementation of the
new standards under the Health and Social Care Act 2008.
People Management
Ours is a people business and I am very pleased indeed with the progress which has been made in delivering a comprehensive set of people management services to our care homes.
During the period, the Group introduced a full suite of processes covering staff recruitment, induction, performance appraisal and training. A national HR support hub was created to act as a one stop shop for all internal people processes and enquiries covering our 43,000 staff. In addition, a national training organisation, embedded within our Regional Business Units, has been created to act as the delivery vehicle for statutory, clinical and management training across all staff groups. In particular, our Home Managers have received training in business management and finance, people management and sales which has already paid dividends in reducing staff turnover by 3% and in increasing the numbers of self funding residents within our homes. Overall I am confident that an improved level of staff engagement has been achieved. We are committed to further developing and refining training opportunities for everybody in the business. Having the best trained staff in the sector is not only the right and responsible thing to do for our people, it is absolutely central to our business model: high job satisfaction and motivation levels will lead directly to better quality service delivery which will enhance our reputation.
During the period the Group invested in the creation of a human resources database which will go live in early 2011 and which will capture all staff records, thereby enabling a wide range of people management and efficiency programmes to be undertaken. A Time and Attendance rostering system is being rolled out across all homes. Indications from the first 60 homes to use this system are that labour costs are reduced by more than 1% as a result of greater control and accuracy of rostering. The system will also enable the set up of internal staff bank groups which the Group believes will lead to a reduction in agency costs.
Sales
One of the priorities we have set ourselves is to improve the Group’s penetration of the self funding market. During the period, the average weekly fee for self funding residents was £668 versus £534 for residents whose care was funded by Local Authorities. The Group has developed a new sales process supported by an on-line enquiry management system and a small national sales call centre. Following a successful pilot in the South of England, which showed an increase in self funder admissions of up to 50%, 250 Home Managers across the UK have been fully trained in our new sales process. In order to support Home Managers in achieving sales targets we recruited experienced sales development professionals within each Regional Business Unit. In addition, the Group’s website has been updated with improved functionality and an enhanced ability to drive sales enquiries.
2. Segmentation and Cost Management
During the period we introduced an internal business segmentation model in order to help drive performance, simplify management communication and inform capital investment decisions. Each home has been classified within one of five segments according to its sales opportunity and cost structure. Each segment has distinct operating characteristics and margin potential:
‘Premium’:
• capable of over 60% of self funder penetration at premium prices.
‘Plus’:
• capable of over 30% self funder penetration. ‘LA Major’:
• large, cost efficient homes focused on local authority provision.
‘LA Minor’:
• less efficient homes focused on local authority provision.
‘Cosy’:
• small (less than 35 bed) homes.
In turn, homes are also accorded the following status: ‘Mover’: capable of moving into a more attractive segment. •
‘Improver’: capable of improvement within the •
existing segment.
‘Trend’: operating at an acceptable level within the •
existing segment.
The Group believes that approximately 200 homes can be positioned in the ‘premium’ and ‘plus’ segments and that over 300 homes have ‘mover’ or ‘improver’ potential.
In May of this year, each Area Manager used the segmentation model in preparing area business plans collaboratively with Home Managers. This process has further enabled the development of simple, focused plans for each home and improved stewardship.
During the period the Group invested £30.3m in maintaining and improving the portfolio, more than meeting its commitment from last year. A Director of Property Services was hired to lead the investment programme and to ensure that its execution optimised returns according to the segmentation methodology. Progress has been made in re-engineering the cost base. The Group began a comprehensive review of central procurement and this work is two thirds complete with approximately £2m of annualised savings already captured in telecommunications, utility supply and food. A review has also been undertaken in repairs, renewals and improvements where the group spends approximately £70m per annum (labour and materials). As a result I am very pleased to announce the appointment of Bovis Lend Lease as our strategic partner for the provision of maintenance and refurbishment services across our national network of 752 homes. We believe the partnership with Bovis Lend Lease will lead to improved standards of service to our home management teams and therefore our residents, greater operational integrity and a more efficient use of the Group’s cash resources. The Group is also in the process of reviewing its catering arrangements where it spends c£80m per annum (labour and materials) in order to improve both the quality and cost effectiveness of this important service. Industry
During the period, the increase in fees paid by local authority commissioners fell materially below the rate of inflation. In addition, older people placed into the Group’s care are increasingly frail on admission and have increasingly acute needs, often involving dementia, which require higher levels of personal attention by our nurses and carers.
The care industry is largely dependent on state funding through either Local Authorities or the National Health Service. It is our view that this funding model is not sustainable in the future as the proportion of elderly people with acute care needs continues to increase. The Group has recognised this in its twin objectives of improving standards of care and in attracting a higher proportion of self-funding and co-paying residents. That said, the provision of services to public commissioners will remain our key market for some considerable time and consequently we have actively raised our industry profile during the lead in to the Government’s Comprehensive Spending Review (CSR).
Our objective in engaging with government was to gain recognition of the proper economic and social value of care services, such as those delivered by the Group. To that end, the Group highlighted:
The value for money provided by residential care versus •
the true cost of providing other forms of care, for example ‘extra care’ and domiciliary care.
Continued inefficient local authority provision and •
commissioning conflict.
The opportunity for care homes to provide a wider range •
of services to the NHS at significantly lower cost.
The outcome of the CSR was disappointing. Local Authorities face reductions in their budgets of 26% over the four years commencing April 2011 and Social Care is not ring fenced. We remain deeply concerned that Local Authorities will reduce expenditure on care for older people by increasing eligibility criteria, thereby leaving vulnerable people without the access to appropriate forms of care, and by depressing fees to increasingly unsustainable levels. The Group welcomes the setting up of the Dilnot Commission into the funding of long term care. This development gives the industry in general the opportunity to influence the future funding of appropriate elderly care provision in the UK and to debate the benefits of different models of care provision with a clear understanding of the true costs of each model. We will continue to work closely with the Commission which will report next summer.
Portfolio
Southern Cross operates 752 homes across the UK. During the period the Group added 479 new beds. At the beginning of FY2011, the Group took the decision to re-categorise 1,303 rooms, previously marketed as twin bedded rooms, for single occupancy at premium rates. This will reduce the number of available beds being marketed across the Group to 37,300, representing a 10.2% share of the UK market for independently provided residential care. (Source: Laing & Buisson).
Caring for Older People
Historically, the Group has operated under two brands, Southern Cross Healthcare and Ashbourne. Following the work done on internal business segmentation and the classification of homes into five segments (Premium, Plus, LA Major, LA Minor, and Cosy) the historical classification under Southern Cross and Ashbourne has been discontinued.
The Group is currently undertaking a major review of its elderly care marketing proposition and branding.
Specialist Services Active Care
Active Care is one of the country’s largest independent mental health and learning disability care providers, operating 49 homes and 930 beds. In the period under review, Active Care generated revenue of £41.9m (2009: £43.8m) a decrease of 4.3%, due primarily to the closure of Abbeydale. It attracted average weekly fees of £1,086 (2009: £1,097).
Name: Clare Macpherson
Job title: Dining Room Assistant
For people of all ages, a good meal can often be the highlight of the day. Clare and her colleagues know this and aim to ensure that for the residents in their care, meal times are something to be looked forward to. Whether it’s assisting people in need of a helping hand or just making sure that meals are well presented and nicely served, our dining room assistants play a vital role in the happiness of our homes and in the health of all of our residents.
The Group welcomes the
setting up of the Dilnot
Commission into the
Operating Performance
During the period, the macro-economic climate has materially worsened leading directly to a like for like decline in mature occupancy of 2.3%. In particular, the Group experienced a reduction in Local Authority admissions in the second half of the period in contrast to the recovery normally seen over the summer months.
The average Local Authority settlement during the period was 1.3% versus RPI of 4.4%. We continued to see restrictions on eligibility criteria and movement towards the provision of domiciliary care to elderly people with acute social needs. Overall average weekly fees increased by a net 2.2%, while home payroll costs increased by 3.4% (excluding the additional 4 days in the current period of account) and home running costs increased by 5.2%. The results were negatively impacted by falling occupancy. Average occupancy in mature homes fell by 2.3% to 86.1%, although the market generally also fell. The net effect was that operating margin reduced by 1.7% to 29.3%.
The operating performance is summarised below.
H1 H2 Total
2010 2010 2010
£’m £’m £’m
Revenue 480.7 477.9 958.6
Home EBITDAR before central costs 140.6 140.3 280.9
Margin % 29.2% 29.4% 29.3%
Rent – charge for amounts currently payable 97.7 99.3 197.0 Rent cover – times 1.44 1.41 1.43
Adjusted EBITDA 28.0 25.4 53.4
Adjusted EBITDA profile 52.4% 47.6% 100% Average mature occupancy % 86.9% 85.3% 86.1% Fee Rates
In the period under review, the Group achieved a net increase in average weekly fee rates of 2.2% to £558 (2009: £546). Fees charged to private clients were reviewed and an overall increase of 3.7% was agreed, effective from February 2010. Over the period, Local Authority fee rate increases differed from Authority to Authority. In England, an average increase of 1.0% was achieved, while in Scotland and Northern Ireland the increase was 2% while for Wales it was 1.6%, resulting in an overall average increase of 1.3%.
People
As I wrote last year in my first report as Chief Executive, I am constantly struck as I go round the business by the professionalism, enthusiasm and dedication of colleagues throughout the country. Our people – Home Managers, Carers, Nurses, Chefs, Housekeepers, Administrators and Maintenance Staff – take the lead in fostering relationships with our residents, their families and the local community. Along with regional and head office staff, they are our route to achieving our ambition to deliver the highest levels of care in the UK. They are vital to our success. Once again, I am delighted to express my thanks to all of them for the contribution they make to the business.
Outlook
The long term demographics for our business remain positive and we are clear that significant opportunities exist for the Group in the provision of dementia and end of life services. In addition we are developing a range of step down and re-ablement services which we believe will be attractive to NHS commissioners.
In the short term however, we will face continued pressure on occupancy levels and on margin as a direct consequence of Local Authority budget reductions and the lack of current definition from central government on long term funding for the care of older people.
Despite these challenges, the Group enters 2011 with a very clear sense of purpose. In its first year, the achievement of the New Horizons Programme has been to lay the foundations for turning Southern Cross into a significantly improved national operator of care homes. As we enter the second year of the programme we now have the management capability to create benefit in the following three areas:
Further improvement in care standards. •
Capture of a higher margin resident mix. •
Achievement of further cost efficiencies. •
To that extent I believe that we are creating a valuable operating brand which will stand the company in very good stead for the future.
Jamie Buchan
Chief Executive
Name: Betty Hannah
Job title: Domestic Supervisor
More often than not it’s the front line nursing staff who steal the limelight in care homes. But without the behind-the-scenes work carried out by dedicated staff like Betty, every care home in the country would very soon grind to a halt. We have them to thank for the cleanliness and hygiene of residents’ private rooms as well as all the public spaces inside our homes. And with almost 33,000 residents in 752 homes the length and breadth of the country, it is impossible to overstate the scale of the daily laundry operation needed to keep things going smoothly.
Chief Executive’s Statement
Financial Review
Richard MidmerGroup Finance Director
Revenue Statement
At the start of the financial period, the Group changed its internal reporting cycles and now reports on a calendar monthly basis (previously the Group reported 13 periods of 4 weeks). The results for the period ended 30 September 2010 are therefore for a period of 368 days (2009: 364 days).
The Group’s operating performance is summarised in the following table:
2010 2009
£’m £’m
Revenue 958.6 937.1
Home EBITDAR before central costs 280.9 290.6
Home EBITDAR margin (%) 29.3 31.0
Adjusted EBITDA before exceptional central costs
and charge for future minimum rental increases 53.4 72.5
Operating loss (44.1) (12.7)
Loss before taxation (47.4) (19.8)
Average number of available beds 38,531 37,664 Cash generated from operating activities 33.4 87.5
Revenue
As at the period end, the Group had increased the number of available beds by 479 (1.3%) to 38,603 (2009: 38,124). The growth was attributable to the completion of two in-house developments (156 beds), an extension to an existing home (23 beds) and the acquisitions of four leasehold homes (300 beds).
The average number of available beds increased by 867 (2.3%) during the period, to 38,531 (2009: 37,664).
Revenue increased by £21.5m to £958.6m (2009: £937.1m), an increase of 2.3%. Excluding the additional 4 days in the current period of account, revenue increased by £11.2m. The increase in revenue is due to the net impact of fee increases, being 2.5% during the period and contributing additional revenue of £23.8m, the impact of acquisitions made in the prior and current period which contributed £12.7m, offset by a reduction in average occupancy of £22.4m and mix effects of £2.9m. Overall the average weekly fee rate increased by a net 2.2%.
Home Operating Costs
Home payroll costs increased £24.1m from £533.7m to £557.8m, of which £5.9m was due to the additional 4 days in the current period of account and £8.8m was attributable to acquisitions made in the current and prior period. Excluding these, home payroll costs increased by £9.4m, driven primarily by wage increases of 1.7% effective in October 2009.
Home running costs for the current period were 12.5% of revenue (2009: 12.0%), in absolute terms, excluding the additional 4 days in the current period of account, home running costs increased by £5.9m (5.2%). The increase was driven by cost of inflation of 3% (£3.4m) and increases in planned repairs and maintenance (£2.5m).
Revenue increased by £21.5m
to £958.6m (2009: £937.1m),
an increase of 2.3%.
Rent
The rent charge for the period, including the non-cash charge of £51.3m (2009: £51.8m) under IAS17, was £248.3m (2009: £239.1m). Excluding the non-cash charge and the additional 4 days in the current period of account, the rental charge increased by £7.7m. The increase was driven by new leases entered into (£3.3m), leases with average fixed increases of 2.7% (£3.0m), leases with RPI linked average increases of 2.5% (£1.0m) and leases subject to 5 yearly increases (£0.4m).
Central Costs
Total central costs, including £6.3m in respect of exceptional central costs, were £36.8m. Excluding exceptional central costs and costs for the 4 additional days in the current period of account, central costs decreased by £0.7m. As a percentage of revenue, central costs (excluding exceptional central costs) equated to 3.2% (2009: 3.3%).
Exceptional Central Costs
Exceptional central costs relate to the internal change programme ‘New Horizons’ and other exceptional costs. During the period £5.3m was incurred in respect of New Horizons. The total costs of the programme are expected to be £6m with the majority of the remaining costs anticipated to be incurred during the first half of FY2011. Other exceptional central costs totalled £1.0m, the majority of which related to costs incurred in respect of a review of the Group’s operating lease portfolio.
Segmental Results
The Group continued to have two distinct segments within its operations, namely Elderly Care (which incorporates Southern Cross Healthcare and Ashbourne Senior Living) and Specialist (being the Active Care Partnership business).
Elderly Care
Average available beds within the Elderly Care portfolio increased by 867 to 37,601 (2009: 36,734). The total number of available beds within the Elderly Care portfolio at the period end was 37,673 (2009: 37,195).
Fee revenue in the Elderly Care segment increased by £23.4m (2.6%) to £916.7m, excluding the additional 4 days in the current period of account, revenue increased by £13.5m. The key driver of revenue growth was the increase in average weekly fee (£23.3m) and acquisitions completed in the prior and current period (£12.7m). These increases were offset by a reduction in occupancy (£20.4m) and mix effects (£2.1m).
Total Home EBITDAR before central costs decreased by £9.7m (3.5%) to £269.6m. Home EBITDAR margin before central costs for Elderly Care reduced to 29.4% (2009: 31.3%).
Specialist Care
Available beds in the specialist segment remained at 930 and included 53 beds in respect of Abbeydale, a centre that was closed during the period and which will re-open during FY2011 under the Elderly Care segment.
During the period, revenues in the Specialist segment decreased by £1.9m (4.3%) to £41.9m (2009: £43.8m) due primarily to the closure of Abbeydale.
Home EBITDAR before central costs for the period remained at £11.3m with Home EBITDAR margin before central costs increasing from 25.8% to 27.0%.
EBITDA
Loss before interest, tax, depreciation and amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, onerous contracts and related impairments, and impairment of freehold assets held for sale (‘EBITDA’) for the Group decreased by £24.9m to a £4.2m loss (2009: £20.7m profit). Excluding the impact of future minimum rental increases under IAS 17 and exceptional central costs, adjusted EBITDA decreased by £19.1m (26.3%) to £53.4m.
Depreciation
Depreciation has increased from £21.6m in 2009 to £27.1m in the current period, reflecting the higher spend incurred during the prior period.
Disposal of Freehold Assets
During the period, the Group disposed of freehold assets for a net cash consideration totalling £31.2m. The related assets had a net book value of £31.4m, resulting in a loss on disposal of £0.2m. Further freehold assets were sold for deferred consideration of £0.6m, being equal to the book value of the assets.
During the period, the Directors reviewed the carrying value of the Group’s freehold properties. Following this review, a number of properties were found to have fair values lower than their carrying value. As a result, the carrying value of the related freeholds has been written down by £1.1m.
Onerous Contracts and Related Impairments
During the period, management took the decision to close two of the Group’s homes. As previously reported, Abbeydale, an independent hospital located in North London, was closed in the first half of the financial period. Ferngrove, a home located in Lancashire, was closed in September 2010 due to the building not meeting the standard required by the Group. As a result of these decisions an onerous contract charge of £11.5m has been recognised in the period and included £0.9m of related impairment charges.
Net Finance Costs
The net financing costs for the period amounted to £3.3m (2009: £7.1m), representing a decrease of £3.8m due to lower levels of debt across the period.
Included within net finance costs are interest charges of £2.2m (2009: £6.0m) in relation to interest payable on bank borrowings and amortisation of loan arrangement fees of £1.1m (2009: £0.7m). The lower interest charge was due to lower levels of debt held by the Group, with net debt at 30 September 2010 of £7.3m (2009: £33.1m). Amortisation of loan arrangement fees increased as a result of costs associated with the consolidation of the Group’s banking facilities, which was completed on 18 May 2010.
Taxation
The tax credit on earnings before taxation of £10.7m (2009: £2.3m charge), consists of a current tax credit of £0.3m and a deferred tax credit of £10.4m, and represents a headline rate of 22.6% (2009: 11.6% negative). The deferred tax credit includes a current period credit of £8.2m, a prior period credit of £3.1m and a charge of £0.9m attributable to a change in the rate of taxation. The current period deferred tax credit is significantly impacted by £8.0m of trading losses arising in the period which cannot be recognised due to the uncertainty of their future economic benefit. This is offset by a £5.3m credit (of which £2.5m relates to prior periods). Furthermore, the current period tax credit is impacted by future minimum rental increases, onerous contracts and related impairments, impairment charges of freehold assets held for sale, losses on disposal of property, plant and equipment and subsidiary undertakings and the rate change on the recognition of deferred tax assets from 28% to 27%. The corporation tax rate change is effective from April 2011 and it is anticipated that all deferred tax assets will reverse after this date.
The reconciliation below shows the effective rate of tax after consideration of the above items.
Taxation credit/ (charge) £’m £’m
Loss before taxation (47.4) 10.7
Future minimum rental increases 51.3 (14.3) Onerous contracts and related impairments 11.5 (3.2) Impairment of freehold assets held for sale 1.1 – Loss on disposal of property, plant and equipment
and subsidiary undertakings 0.2 –
Trading losses arising not recognised – 8.0 Impact of prior period items – (3.4)
Other – (2.8)
Rate change on deferred tax assets – 0.9
Total 16.7 (4.1)
After consideration of the above items, the current tax charge of £4.1m represents an effective tax rate of 24.6% (2009: 25.8%) before charges for future minimum rental increases, onerous contracts and related impairments, losses on disposal and impairment charges.
The Group expects the effective future tax rate to remain at or slightly below the standard rate of corporation tax in future periods.
Dividends
Total dividends paid during the period amounted to £Nil (2009: £Nil) and the Directors have decided not to recommend a final dividend for the period ended 30 September 2010.
Loss per Share
The loss per share for the period was 19.51p (2009: loss of 11.75p). Earnings per share for the period before future minimum rental increase charges, exceptional central costs and the taxation impact thereof, was 2.55p (2009: 8.08p), a decrease of 68%. Excluding the impact of losses recognised in respect of freehold properties, impairment charges and charges in respect of onerous contracts and related impairments, adjusted earnings per share was 7.65p (2009: 17.65p).
Balance Sheet
Non-current Assets
Property, Plant and Equipment
Property, plant and equipment increased from £111.4m to £118.4m due to the net impact of additions to property, plant and equipment of £35.8m, offset by depreciation charges of £27.1m, and other asset disposals and impairments of £1.7m. Deferred Tax
Deferred tax assets have increased by £10.5m from £14.7m to £25.2m. The movement is primarily due to the increase in capital allowances available to the Group.
Property Assets Held for Sale
At the start of the current period, the Group held 20 freehold property assets for resale with a value totalling £46.5m. During the period, 6 were disposed of with a value of £31.4m. Following a review by the Directors of the carrying values of the remaining 14 freehold property assets held for sale, an impairment charge of £1.1m was made.
The property assets held for sale at the period end relate to 14 freehold properties amounting to £14.0m, all of which are being actively marketed.
Financial Review
Cash Flow
2010 2009
£’m £’m
Cash flows from operations 33.4 87.5 Net interest and taxation (3.7) 3.3
Investing activities (3.9) (25.6)
Financing activities (56.4) (35.6)
Net (decrease)/increase in cash (30.6) 29.6 Net decrease in cash during the period was £30.6m (2009: £29.6m increase), with cash inflow from operations of £33.4m (2009: £87.5m). Cash inflow from operations represents a cash conversion ratio of Adjusted EBITDA, after exceptional items, of 74.3% (2009: 120.7%). The current period cash conversion ratio has been reduced due to the impact of 5 quarterly rent payments (£14.6m) being made as a result of the extended period. Excluding the impact of these items, the cash conversion ratio, after exceptional items, was 102%. Finance charges paid during the period amounted to £3.7m (2009: £13.1m) and included £1.1m relating to loan arrangement fees and costs in respect of the consolidation of the Group’s banking facilities in May. The remaining payments relate to standard charges incurred in accordance with the Group’s banking facilities. Tax payments during the period totalled £0.2m (2009: £15.6m repayment) and related to prior periods.
Net cash outflow from investing activities amounted to £3.9m (2009: £25.6m). Included within net cash outflow from investing activities are purchase of property, plant and equipment of £35.1m and receipts from the sale of subsidiary undertakings and the sale of property, plant and equipment and other assets of £25.5m and £5.7m respectively.
Purchase of property, plant and equipment totalled £35.1m and included £2.1m of development expenditure, £30.3m of
maintenance and improvement capex on the Group’s homes and other capital expenditure of £2.7m.
The net cash used in financing activities for the period amounted to £56.4m (2009: £35.6m) and included net repayment of bank borrowings totalling £55.8m.
Net Debt and Financing
During the period, the Group’s net debt reduced by £25.8m to £7.3m (2009: £33.1m) with bank borrowings reducing by a net £55.8m. On 18 May 2010 the Group consolidated its existing banking arrangements into a revised £50m revolving credit facility. Interest on drawn amounts is charged at margins between 2.75% and 3.25% above LIBOR. At 30 September 2010, the Group had loans of £7.5m drawn on the facility.
As at the period end, the Group had committed bank facilities of £50m, against which it had loans drawn of £7.5m, finance lease obligations of £1.0m and guarantees issued of £11.8m, leaving £29.7m of undrawn facilities.
The Group holds agreements to limit its exposure to interest rate movements. At the period end, the Group had £13.6m of interest rate caps outstanding at 4.62% and £21.0m of interest rate collars outstanding with cap rates of 4.50% and floors of 2.57%. The notional amount hedged under these agreements reduces over their term and both expire on 30 June 2011.
Following recent discussions with the Group’s lenders, revisions to the existing banking arrangements were agreed on 6 December 2010. The Group’s facility now comprises an amortising £45m RCF repayable in September 2012, with the fixed charge covenant relaxed from 1.23x to 1.1x. The first amortisation, of £3.3m, takes place on 1 October 2011.
Available Beds
Following a review of double occupancy rooms, the Group has reclassified 1,303 rooms as single occupancy. As at the beginning of FY11, this will have the net impact of reducing the number of available beds across the Group by 1,303 beds to 37,300. For FY10, this amendment to available beds would have had the effect of increasing average occupancy for the Group from 84.8% to 87.8%.
Richard Midmer
